Midterms Reviewer - Sales

Article 1466. In construing a contract containing provisions characteristic of both the contract of sale and of the contract of agency to sell, the essential clauses of the whole instrument shall be considered.

Article 1471. If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation, or some other act or contract. EFFECT OF GROSS INADEQUACY OF PRICE

Sale vs. Agency SALE The buyer pays for the price of the goods/property purchased The buyer becomes the owner of the goods/property purchased Buyer cannot return the goods/property when the sale is defective The seller warrants the goods/property sold

The seller has full freedom to enter into any terms or conditions on the contract of sale

AGENCY The agent does not pay for the price. He merely accounts for the proceeds of the sale. The agent does not become the owner of the goods/property delivered to him for sale. The agent returns the goods/property if he was not able to sell the same The agent does not make any warranty as long as he acts within his authority and in the name of the principal The agent must follow the instructions of the principal

Article 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work. Contract for a Piece of Work— The article sold is specially manufactured and upon the special order of the customer. Article is not sold in the ordinary course of business. Contract for a piece of work Contract of Sale The thing transferred is one not The thing transferred is one which in existence and w/c never would have existed and would have would have existed but for the been the subject of sale to some order of the party desiring to other person, even if the order had acquire it not been given The services dominate the The primary objective of the contract even though there is a contract is a sale of the sale of goods involved manufactured item; it is a sale of goods even though the item is manufactured by labor furnished by the seller and upon previous order of the customer Not w/in the Statute of Frauds Governable by the Statute of Frauds Article 1468. If the consideration of the contract consists partly in money, and partly in another thing, the transaction shall be characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be considered a barter if the value of the thing given as a part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a sale. Sale Barter Consideration: giving of money as Consideration: giving of a thing payment Governed by law on sales: species of the genus sales If consideration consists party in money and partly by thing – look at manifest intention; If intention is not clear: value of If intention is not clear: value of thing is equal thing is more or less than amount of money – than amount of money – barter sale Rules if Consideration is partly Money and Partly Goods 1. Determine the intention of the parties. 2. If intention could not be determined, consider the value of the thing given: a. If value of the thing more than value of the money, it is BARTER b. If value of the thing less than value of the money, it is SALE c. If both values are the same, SALE Article 1470. Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract.

NOTE: Mere inadequacy of the price does not affect the validity of the sale, except (1) When there is fraud, mistake, or undue influence indicative of a defect in consent is present, (2)When it shows that the parties really intended a donation or some other act or contract. EFFECT WHERE PRICE IS SIMULATED 1. The act may be shown to have been in reality a donation, or some other act or contract 2. If not and neither party had any intention whatsoever that the amount will be paid (absolutely simulated): the sale is void 3. If there is a real price but what is stated in the contract is not the one intended to be paid (only relatively simulated): the contract of sale is valid but subject to reformation Effect of Gross Inadequacy of Price. No effect. Exceptions: (meaning, sale is set aside) 1. If consent is vitiated, such as VIMFU (Violence, Intimidation, Mistake, Fraud, Undue influence) 2. If the parties intended a donation or some other act or contract 3. If the price is so low as to be shocking to the conscience Effect of Simulated Price. Sale is void, unless it could be shown that the parties intended a donation or some other act of liberality. o Price Simulated- No price to support a contract of sale, such that neither party had any intention that the amount will be paid—void o Price is False- there is a real price not declared—contract is valid, but the underlying deed is subject to reformation to indicate the real price upon which the minds of the parties have met. Article 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. PERFECTION OF CONTRACT OF SALE. Meeting of the minds upon the thing and price. Effect: Parties may reciprocally demand performance GENERAL RULE: A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price; consensual contract Exception: When the sale is subject to a suspensive condition REQUIREMENTS: 1. When parties are face to face – when there is absolute acceptance of an offer that is certain 2. When thru correspondence or telegram – when the offer or receives or had knowledge of the acceptance 3. When the sale is subject to a suspensive condition – from the moment the condition is fulfilled NOTES: Qualified acceptance: mere counter-offer which needs to be absolutely accepted to give rise to perfected contract of sale. Business ads are mere invitations to make an offer except when it appears to be otherwise. Article 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. Article 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price. Article 1480. Any injury to or benefit from the thing sold, after the contract has been perfected, from the moment of the perfection of the contract to the time of delivery, shall be governed by articles 1163 to 1165, and 1262. This rule shall apply to the sale of fungible things, made independently and for a single price, or without consideration of their weight, number, or measure.

Should fungible things be sold for a price fixed according to weight, number, or measure, the risk shall not be imputed to the vendee until they have been weighed, counted, or measured and delivered, unless the latter has incurred in delay. Legal consequences from point of perfection are the same in both legal systems: upon perfection of an unconditional contract of sale involving specific or determinate subject matter, the risk of loss deterioration and the benefits of fruits and improvements, were fro the account of the buyer. WHO BEARS RISK OF LOSS/ DETERIORATION/ FRUITS: 1. BEFORE PERFECTION a. Res perit domino b. Owner is seller so seller bears risk ofloss 2. AT PERFECTION o Res perit domino o Contract is merely inefficacious because loss of the subject matter does not affect the validity of the sale o Seller cannot anymore comply with obligation so buyer cannot anymore be compelled 3. AFTER PERFECTION BUT BEFORE DELIVERY o Loss – confused state o Paras: BUYER o Tolentino: SELLER o Deterioration and fruits – Buyer bears loss; 4. AFTER DELIVERY o Res perit domino o Delivery extinguishes ownership visa-vis the seller and creates a new one in favor of the buyer Article 1481. In the contract of sale of goods by description or by sample, the contract may be rescinded if the bulk of the goods delivered do not correspond with the description or the sample, and if the contract be by sample as well as description, it is not sufficient that the bulk of goods correspond with the sample if they do not also correspond with the description. The buyer shall have a reasonable opportunity of comparing the bulk with the description or the sample. Sale of Goods By Description- where a seller sells a thing as being of a certain kind verbally describing them and the buyer simply relies on the seller’s descriptions of the things, not knowing whether the seller’s representations are true or not. Sale by Sample- Where the seller warrants that the bulk of goods being sold correspond with the sample or samples exhibited not only in kind but also in quality and character. Sale by Description and Sample- Where the seller has to satisfy the requirements in sale by description and sample. There are two-fold warranty here: (a) the goods purchased matched with the description and (b) the goods also matched in kind, quality and character with that of the sample or samples exhibited to the buyer or his representative Article 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. EARNEST MONEY vs. OPTION MONEY Earnest Money Option Money It is part of the purchase price It is given as a distinct consideration for an option contract which gives the buyer a specific period within which to purchase the thing It is given only when there is It is given at a time when the sale already a perfected sale had not yet been perfected. What had been perfected only is the option contract When it is given, the buyer is Even if option money is paid by the bound to pay the balance of the would-be-buyer he is not bound to agreed purchase price buy the thing If the sale does not materialize, If the buyer decides not to buy the the earnest money paid must be thing, he cannot recover the option returned, unless a contrary money he paid as consideration for agreement had been stipulated the contract of option Article 1483. Subject to the provisions of the Statute of Frauds and of any other applicable statute, a contract of sale may be made in writing,

or by word of mouth, or partly in writing and partly by word of mouth, or may be inferred from the conduct of the parties. FORM OF SALES I. Form not important in validity of sale a. Sale being consensual, may be oral or written, perfected by mere consent as to price and subject matter b. If particular form is required under the statute of frauds: i. valid and binding between parties but not binding to 3rd persons c. Reason: purposes of convenience only and not for validity and enforceability; cause of action is granted to sue and compel other party to execute the document II. When form is important for validity; exception by specific provision of law; a. Power to sell a piece of land granted to an agent – otherwise VOID b. Sale of large cattle; must also be registered with Municipal treasurer – otherwise VOID c. Sale of land by non-Christian if not approved by Governor– VOID III. When form is important for enforceability (STATUTE OF FRAUDS Article 1403 (2)) a. A sale agreement which by its terms is not to be performed within a year from the making thereof; b. An agreement for the sale of goods, chattels or things in action, at a price not less than P500.00; and c. A sale of real property or of an interest therein. IV. EXCEPTIONS TO COVERAGE OF STATUTE IN SALES CONTRACTS: 1. When there is a note or memorandum in writing and subscribed to by party or his agent (contains essential terms of the contract) 2. When there has been partial performance/execution (seller delivers with intent to transfer title/receives price) 3. When there has been failure to object to presentation of evidence (oral) 4. When sales are effected through electronic commerce Article 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1)Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. Article 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing. Article 1486. In the case referred to in the two preceding articles, a stipulation that the installments or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances. Article 1487. The expenses for the execution and registration of the sale shall be borne by the vendor, unless there is a stipulation to the contrary. Article 1488. The expropriation of property for public use is governed by special laws. Article 1489. All persons who are authorized in this Code to obligate themselves, may enter into a contract of sale, saving the modifications contained in the following articles. Where necessaries are those sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefor. Necessaries are those referred to in article 290. Two Kinds of Incapacity: 1. Absolute Incapacity- Party cannot bind himself in any case. 2. Relative Incapacity- Certain Persons under certain circumstances cannot buy certain property. ** Minors in contract for necessaries must pay reasonable price.

Necessaries—those things which are needed for sustenance, dwelling, clothing and medical attendance, in keeping with the financial capacity of the family of the incapacitated person. Article 1490. The husband and the wife cannot sell property to each other, except: (1) When a separation of property was agreed upon in the marriage settlements; or (2) When there has been a judicial separation of property under article 191. Prohibition against Husband and Wife. Exceptions. Rationale: PID a. To avoid Prejudice to 3rd Persons b. To prevent one spouse from unduly influencing the other. c. To avoid by indirection the violation of the prohibition against donations. Who may assail illegality? a. Creditors prior to the sale b. Heirs of either spouse. ** Either spouse may not assail illegality because they are parties thereto. ** A spouse designated as agent of the other spouse may sell the latter’s exclusive property. Article 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: (1) The guardian, the property of the person or persons who may be under his guardianship; (2) Agents, the property whose administration or sale may have been intrusted to them, unless the consent of the principal has been given; (3) Executors and administrators, the property of the estate under administration; (4) Public officers and employees, the property of the State or of any subdivision thereof, or of any government-owned or controlled corporation, or institution, the administration of which has been intrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale; (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession; (6) Any others specially disqualified by law. Persons Relatively Incapacitated to Buy. (PAGEJO) 1. Public Officers and employees—Property Of State. 2. Agents—Property of Principal unless with consent. 3. Guardian—Property of Ward. 4. Executors and administrators—Estate 5. Justices, Judges, Prosecuting Attorneys, Clerks and employees of court—Property/Rights under litigation. 6. Others disqualified by law. (Ex. *aliens who are disqualified to purchase private agricultural lands; *an unpaid seller having a right of lien or having stopped the goods in transitu, who is prohibited from buying the goods either directly or indirectly in the resale of the same at a public or private sale w/c he may make. Art. 1533, par.5) Rationale: Fiduciary relationship Status of Sale: Voidable (1-3); Void (4-6) Article 1492. The prohibitions in the two preceding articles are applicable to sales in legal redemption, compromises and renunciations. Article 1493. If at the time the contract of sale is perfected, the thing which is the object of the contract has been entirely lost, the contract shall be without any effect. But if the thing should have been lost in part only, the vendee may choose between withdrawing from the contract and demanding the remaining part, paying its price in proportion to the total sum agreed upon.

Partial Loss Rules: 1. Vendee may withdraw from the contract 2. Demand the remaining part, paying its price in proportion to the total sum agreed upon Article 1494. Where the parties purport a sale of specific goods, and the goods without the knowledge of the seller have perished in part or have wholly or in a material part so deteriorated in quality as to be substantially changed in character, the buyer may at his option treat the sale: (1) As avoided; or (2) As valid in all of the existing goods or in so much thereof as have not deteriorated, and as binding the buyer to pay the agreed price for the goods in which the ownership will pass, if the sale was divisible. Loss/Substantial Deterioration of Specific Goods without seller’s knowledge. 1. Buyer may avoid the sale or 2. May treat sale as valid w/ respect to the existing goods Article 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale. Obligations of Vendor. (TDWP) 1. Transfer Ownership (not waivable) 2. Deliver (not waivable) 3. Warrant Object (waivable and may be modified) 4. Preserve Thing from perfection to delivery (Art. 1163) 5. Pay for the execution and registration of the sale unless there is a contrary agreement **Execution sales do not require the delivery of thing since a one year period of redemption is available to seller. Article 1496. The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee. Article 1497. The thing sold shall be understood as delivered, when it is placed in the control and possession of the vendee. Control and Possession necessary in Delivery. Exception: Art. 1478. Stipulation as to full payment of price. Delivery- a mode of acquiring ownership as a consequence of a contract of sale by virtue of which actually or constructively the object is placed in the control and possession of the vendee. KINDS OF DELIVERY 1. Actual or Real. (1497) 2. Legal or Constructive a. Legal Formalities (1498); execution of public instrument. b. Symbolical Tradition (1498 par 2)- keys delivered. c. Traditio Longa Manu- by mere consent /agreement. If the movable sold cannot yet be transferred to the possession of the buyer at the time of the sale. (1499) d. Traditio Brevi Manu- if the buyer had already the possession the object even before the purchase. (lessee becomes owner) e. Traditio constitutum possessorium- possession as owner changed. (Owner becomes lessee) 3. Quasi-Tradition- Delivery of Rights, credits or incorporeal property made by: a. Execution of public instrument b. Placing titles of ownership in the hands of a lawyer. c. Allowing the buyer to make use of the rights (1501) Article 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. With regard to movable property, its delivery may also be made by the delivery of the keys of the place or depository where it is stored or kept. Requirements: 1. Seller’s Control.

2. Seller’s Control transferred to buyer. 3. Intention to deliver for ownership.

delivery

Article 1499. The delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties, if the thing sold cannot be transferred to the possession of the vendee at the time of the sale, or if the latter already had it in his possession for any other reason. Article 1500. There may also be tradition constitutum possessorium. Different forms of Constructive Delivery - Constructive delivery has same legal effect as actual or physical delivery 1. Traditio Longa Manu − Delivery of thing by mere agreement; when SELLER points to the property without need of actually delivering 2. Traditio Brevi Manu − Before contract of sale, the would be buyer was already in possession of the would be subject matter of sale (ex: as lessee) 3. Symbolic delivery − As to movables – ex: delivery of the keys to a car 4. Constitutum possessarium − When at the time of the perfection of the contract of sale, seller had possession of the subject matter in the concept of owner and pursuant to the contract, seller continues to hold physical possession no longer in the concept of an owner but as a lessee or any other form of possession other than in the concept of owner. Article 1501. With respect to incorporeal property, the provisions of the first paragraph of article 1498 shall govern. In any other case wherein said provisions are not applicable, the placing of the titles of ownership in the possession of the vendee or the use by the vendee of his rights, with the vendor's consent, shall be understood as a delivery. Article 1502. When goods are delivered to the buyer "on sale or return" to give the buyer an option to return the goods instead of paying the price, the ownership passes to the buyer on delivery, but he may revest the ownership in the seller by returning or tendering the goods within the time fixed in the contract, or, if no time has been fixed, within a reasonable time. When goods are delivered to the buyer on approval or on trial or on satisfaction, or other similar terms, the ownership therein passes to the buyer: (1) When he signifies his approval or acceptance to the seller or does any other act adopting the transaction; (2) If he does not signify his approval or acceptance to the seller, but retains the goods without giving notice of rejection, then if a time has been fixed for the return of the goods, on the expiration of such time, and, if no time has been fixed, on the expiration of a reasonable time. What is a reasonable time is a question of fact. Transaction on Sale or Return. Subject to Resolutory Condition. Difference with “Delivery with option to purchase”- Ownership is transferred in Sale or Return Transaction on Approval or Trial/Satisfaction. Subject to Suspensive Condition. Rules: 1. Risk of loss to seller until the sale becomes absolute. (Exceptions: Buyer in default; Buyer agreed to bear the loss) 2. Buyer must give goods a trial except when it is evident that it cannot perform the work intended. 3. Period of signifying acceptance commences to run only when all the parts essential for operation has been delivered. 4. A provision that a 3rd person must satisfy approval is valid but he must be in Good faith. 5. Generally the Sale and Delivery to an expert buyer is not a sale on approval/trial. Sale or Return vs. Sale on Approval Basis Sale or Return Condition Subject to Resolutory condition Premise It depends upon the will of the buyer

Transfer of ownership

Ownership immediately passes to the buyer on

Sale on Approval Subject to suspensive condition It depends upon the suitability, quality or character of the goods Ownership does not immediately pass to the buyer. It passes

Revesting of ownership in the owner

Ownership is revested in the seller if the buyer so decides

Risk of loss or deterioration

The risk rests on the buyer before the revestment of ownership

only upon approval or satisfaction of the buyer duly manifested after trial There is no revesting of ownership because it is retained by the seller until the sale becomes absolute The risk remains in the seller while the goods are on trial